Category: banking

I think Bitcoins and the Blockchain are amazingly cool. I still don’t think Bitcoins are a useful currency and I worry that many of Bitcoin’s biggests fans also like the gold standard, Austrian economics and some other crazy stuff.

Credit Life regulations have been live for long enough now that insurers are starting to feel the impact and the shake-up of amongst industry players is starting to emerge.

There have been plenty of debate around the regulations, in part because of the dramatic financial and operational impact they will have, and partly because of how imperfectly worded they are and the scope for interpretation.

I’ll be posting about this more in the coming days.

Basing the premium on initial or outstanding balance

First, a real anomaly is the ability for insurers to charge the capped premium rate either on initial loan balance or on the declining outstanding balance.

Jeffrey Robinson, the author of the well known book “Laundrymen” that I’m now reading, has written an engaging story about The Satoshi Faithful (as he calls them) supporters of Bitcoin and where their Faith is leading them stray.

The book is called BitCon: The Naked Truth About Bitcoin and it doesn’t pull punches in deriding the would-be currency. If you don’t know anything about Bitcoins, it may skip over some of the introductions necessary to hold your own in conversation. This isn’t a primer on Bitcoins or crypto-currencies, but it also doesn’t spend chapters on involved technical details so you won’t be completely lost.

I described the book as “engaging”. For me, already very sceptical of the long-term chances of success for Bitcoin and specifically critical of its suitability as real “currency”, it had me nodding in agreement with many sections. Frankly, I don’t know how persuasive it would be to a fervent supporter (not that much anything would be).

I did enjoy the insights into some of the personalities behind Bitcoin and the histories of different supporters and how this has changed over the short time Bitcoins have been around. I learnt more about the Dark Web than I knew before, gaining a new appreciation for how dark the underbelly of the web and Bitcoins are.

Robinson ignored what I think is a key limitation on Bitcoin. Supporters claim its value derives in large part from the limited supply, but without any intrinsic value, other crypto-currencies are near-perfect substitutes. I’ve blogged about this before and was looking forward to seeing another take on it.

I enjoyed the book, reading through it fairly quickly and without wanting to switch to something else, suggesting Robinson hit the target with length and balance of information vs entertainment.

S&P declares Argentina to be in default for the second time in 13 years and the third in 25. Inflation is likely to hit 40% this year and the Peso has already lost a quarter of its value this year, measured against the US Dollar.

Messages? This time isn’t different, sovereign debt crises happen all the time, ignore currency risk at your peril and there are many reasons governments can default on their debt.

Bitcoins are an awful idea as a currency. The 21m fixed limitation on bitcoins in a hopefully growing economy requires deflationary prices. Deflationary prices in turn discourage consumption and encourage hoarding. Low consumption and hoarding lead to low economic growth, a decreased velocity of money and more deflation.

But what about Bitcoins as an interesting speculative investment? With prices surges recently some could have made serious money. With the inevitable crash, brave souls may make money shorting Bitcoins. (but “markets can remain irrational longer than you can remain solveny” etc.)

But, the Bitcoin supporters say, if there is a 21m ultimate final supply, won’t increasing demand lead to increasing prices? Won’t this become a type of collectors’ item?

Here we run firmly into the absolute lack of intrinsic value for Bitcoins. Gold is a limited, non-corroding, shiny, vaguely useful in electronics element. It also barely has intrinsic value but at least it is truly unique.

What’s to stop someone investing Bacon Flavoured Bitcoins with a maximum supply of 21m (or any other number). A new version of Bitcoins for when the original or “Classic Bitcoins” are so tightly in demand that there is obviously demand for more of the same or similar. We could also have cheese flavoured, bubble-gum flavoured or, my personal favourite, Dutch Tulip flavoured Bitcoins.

Artificial scarcity is not true scarcity and near substitutes can be created at will.

South Africa has a pretty rich history of banking failures. This paper, part of a masters, by Sipho Makhubela, provides an interesting over of banking failures since 1994. I haven’t read the entire paper yet, but Section 4 (starting on page 72) outlines the background behind banking failures in South Africa and is fascinating reading in its own right.

No Eurozone country, since the creation of the Euro, has ever instituted capital controls. It’s not really allowed, except in exceptional circumstances. Which goes to show the value of rules with exceptions for “exceptional circumstances”. Which is to say, not much.

The cost to large depositors

Deposits above 100,000 euros have been frozen at both banks. They could be wiped out entirely at Popular. At Bank of Cyprus, about 40% will be converted into equity.

So that is an absolute bank failure, no two ways about it.

The capital controls

depositors would be able to withdraw no more than €300 in cash each day, said people familiar with the move. Transfers over €5,000 would require permission of the central bank.

Overseas credit card transactions would be limited to €5,000 per month, but unrestricted in Cyprus. And there would be a ban on people taking more than €3,000 of bank notes out of the country per trip.

These rules will expire in 7 days. Oh, unless they’re renewed. Prediction – they will be renewed.